Question 1

Theele Corporation has the following information for April, May, and June:
Production costs per unit (based on 10,000 units) are as follows:
 $\begin{array}{lrrr} 
& \text { April } & \underline{\text { May }} & \text { June } \
\text { Units produced } & 10,000 & 10,000 & 10,000 \
\text { Units sold } & 7,000 & 8,500 & 10,500
\end{array}$ Theele Corporation had no beginning inventories for April, and all units were sold for $55 per unit. Costs are stable over the three months.
 $\begin{array}{lr}
\text { Direct materials } & \$ 13 \
\text { Direct labour } & 9 \
\text { Variable factory overhead } & 7 \
\text { Fixed factory overhead } & 5 \
\text { Variable selling and administrative expenses } & 10 \
\text { Fixed selling and administrative expenses } & 4
\end{array}$
-Refer to the Figure.What is the May ending inventory for Theele Corporation when using the absorption costing method?

Accepted Answer

Under the absorption costing method, ending inventory includes all manufacturing costs (direct materials, direct labor, variable factory overhead, and fixed factory overhead). The cost per unit is calculated as $13 (direct materials) + $9 (direct labor) + $7 (variable factory overhead) + $5 (fixed factory overhead) = $34 per unit. In May, 1,500 units (10,000 produced - 8,500 sold) are in ending inventory. Therefore, the ending inventory value is 1,500 units * $34 = $51,000. However, since none of the provided choices match this calculation, it seems there might have been a mistake in the calculation or in the interpretation of the provided choices. Given the choices, none directly match the expected calculation based on the provided data and the explanation of absorption costing.

Question 2

The following information pertains to Shark Corporation:
 $$\begin{array} { l r } 
\text { Beginning inventory } & 0 \text { units } \
\text { Ending inventory } & 6,000 \text { units } \
\text { Direct labour per unit } & \$ 2022 \
\text { Direct materials per unit } & 1618 \
\text { Variable overhead per unit } & 48 \
\text { Fixed overhead per unit } & 1012 \
\text { Variable selling costs per unit } & 1214 \
\text { Fixed selling costs per unit } & 1618
\end{array}$$
-Refer to the Figure.What is the value of ending inventory when using the absorption-costing method?

Accepted Answer

The absorption-costing method includes fixed manufacturing costs as part of the product cost. The ending inventory is valued at the total manufacturing cost, which includes both variable and fixed manufacturing costs. The total manufacturing cost per unit is $2022 + $1618 + $48 + $1012 = $3680. The ending inventory value is 6,000 units x $3680 = $348,000.

Question 3

The following information pertains to Nute Corporation:
 $$\begin{array} { l r } 
\text { Beginning inventory } & 1,000 \text { units } \
\text { Ending inventory } & 6,000 \text { units } \
\text { Direct labour per unit } & \$ 40 \
\text { Direct materials per unit } & 20 \
\text { Variable overhead per unit } & 10 \
\text { Fixed overhead per unit } & 30 \
\text { Variable selling and administrative costs per unit } & 6 \
\text { Fixed selling and administrative costs per unit } & 14
\end{array}$$
-Refer to the Figure.What is the relationship between absorption costing net income and variable costing net income?

Accepted Answer

Under absorption costing, both variable and fixed manufacturing costs are included in product costs, whereas under variable costing, only variable manufacturing costs are included in product costs. The difference in net income between the two methods is due to the treatment of fixed manufacturing overhead. With an increase in inventory, absorption costing will allocate some of the fixed overhead to the increased inventory, thus reducing the expense recognized during the period compared to variable costing. The increase in ending inventory (6,000 units) compared to beginning inventory (1,000 units) by 5,000 units, and the fixed overhead per unit being $30, results in a $150,000 (5,000 units * $30/unit) difference in net income, with absorption costing showing a higher net income by this amount because less fixed overhead is expensed in the current period.

Question 4

The following information pertains to Shark Corporation:
 $$\begin{array} { l r } 
\text { Beginning inventory } & 0 \text { units } \
\text { Ending inventory } & 6,000 \text { units } \
\text { Direct labour per unit } & \$ 2022 \
\text { Direct materials per unit } & 1618 \
\text { Variable overhead per unit } & 48 \
\text { Fixed overhead per unit } & 1012 \
\text { Variable selling costs per unit } & 1214 \
\text { Fixed selling costs per unit } & 1618
\end{array}$$
-Refer to the Figure.What is the value of ending inventory when using the variable costing method?

Accepted Answer

Under the variable costing method, only variable costs are included in the inventory valuation. These are direct labor, direct materials, and variable overhead. The calculation is as follows: (2022 + 1618 + 48) * 6,000 units = $288,000.

Question 5

Carmel Company uses 810 units of a part each year. The cost of placing one order is $10; the cost of carrying one unit in inventory for a year is $4.
-Refer to the Figure.What is the EOQ for Benton?

Accepted Answer

The EOQ formula is √((2DS)/H), where D represents annual demand, S represents the setup cost, and H represents the holding cost per unit.

Plugging in the given values, we get: 
EOQ = √((2*810*10)/4) = √(16,200) ≈ 127.28

Rounding up to the nearest whole number, the EOQ is 128.

Therefore, the best choice is to order 128 units each time to minimize the total ordering and holding costs.

The options A and B are too small and would result in too many orders, increasing the ordering cost. Option D is too large and would result in excess inventory and higher holding costs. Option C provides the best balance between ordering and holding costs.

Question 6

Stosho Company incurred the following costs in manufacturing desk calculators:
During the period, the company produced and sold 2,000 units.
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 28 \
\text { Indirect materials (variable) } & 8 \
\text { Direct labour } & 16 \
\text { Indirect labour (variable) } & 12 \
\text { Other variable factory overhead } & 20 \
\text { Fixed factory overhead } & 56 \
\text { Variable selling expenses } & 40 \
\text { Fixed selling expenses } & 28
\end{array}$$
-Refer to the Figure.What is the inventory cost per unit using absorption costing?

Accepted Answer

The answer of Stosho Company incurred the following costs in...

Question 7

Raymond Company reported the following units of production and sales for June and July:
Net income under absorption costing for June was $40,000; net income under variable costing for July was $50,000. Fixed manufacturing costs were $600,000 for each month. 
-Refer to the Figure.What was the net income for July using absorption costing?

Accepted Answer

Absorption costing includes fixed manufacturing costs as part of the product cost. In this case, the fixed manufacturing costs are $20,000. The net income for July using absorption costing is $80,000 - $20,000 = $60,000.

Question 8

Westwood Company has the following information the current year:
Eastwood had no beginning inventories.
 $\begin{array}{lr}
\text { Selling price } & \$ 300 \text { per unit } \
\text { Variable production costs } & \$ 80 \text { per unit produced } \
\text { Variable selling and administrative expenses } & \$ 32 \text { per unit sold } \
\text { Fixed production costs } & \$ 400,000 \
\text { Fixed selling and administrative expenses } & \$ 280,000 \
\text { Units produced } & 20,000 \text { units } \
\text { Units sold } & 16,000 \text { units }
\end{array}$
-Refer to the Figure.What is the ending inventory for Westwood using the absorption costing method?

Accepted Answer

The answer of Westwood Company has the following information the...

Question 9

The following information pertains to Nute Corporation:
 $$\begin{array} { l r } 
\text { Beginning inventory } & 1,000 \text { units } \
\text { Ending inventory } & 6,000 \text { units } \
\text { Direct labour per unit } & \$ 40 \
\text { Direct materials per unit } & 20 \
\text { Variable overhead per unit } & 10 \
\text { Fixed overhead per unit } & 30 \
\text { Variable selling and administrative costs per unit } & 6 \
\text { Fixed selling and administrative costs per unit } & 14
\end{array}$$
-Refer to the Figure.What is the value of the ending inventory using the absorption costing method?

Accepted Answer

Under absorption costing, ending inventory is valued by including direct materials, direct labor, variable overhead, and fixed overhead. The cost per unit is $100 ($20 + $40 + $10 + $30). Therefore, the ending inventory value is 6,000 units * $100 = $600,000.

Question 10

Raymond Company reported the following units of production and sales for June and July:
Net income under absorption costing for June was $40,000; net income under variable costing for July was $50,000. Fixed manufacturing costs were $600,000 for each month. 
-Refer to the Figure.What was the net income for June using variable costing?

Accepted Answer

Under variable costing, fixed manufacturing costs are treated as period costs and are not included in the cost of goods sold. Therefore, net income for June using variable costing would only include variable manufacturing costs of $260,000. To reconcile the difference in net income between the two methods, the change in inventory must be considered. Since there was no change in inventory, the difference in net income can be attributed solely to the treatment of fixed manufacturing costs. Thus, the fixed manufacturing costs of $600,000 for June would be added back to the variable costing net income of $220,000 to arrive at the absorption costing net income of $40,000. Therefore, the net income for June using variable costing would be $220,000 - $260,000 = ($40,000).

Question 11

Westwood Company has the following information the current year:
Eastwood had no beginning inventories.
 $\begin{array}{lr}
\text { Selling price } & \$ 300 \text { per unit } \
\text { Variable production costs } & \$ 80 \text { per unit produced } \
\text { Variable selling and administrative expenses } & \$ 32 \text { per unit sold } \
\text { Fixed production costs } & \$ 400,000 \
\text { Fixed selling and administrative expenses } & \$ 280,000 \
\text { Units produced } & 20,000 \text { units } \
\text { Units sold } & 16,000 \text { units }
\end{array}$
-Refer to the Figure.What is the cost of ending inventory for Westwood using the variable costing method?

Accepted Answer

The answer of Westwood Company has the following information the...

Question 12

Westwood Company has the following information the current year:
Eastwood had no beginning inventories.
 $\begin{array}{lr}
\text { Selling price } & \$ 300 \text { per unit } \
\text { Variable production costs } & \$ 80 \text { per unit produced } \
\text { Variable selling and administrative expenses } & \$ 32 \text { per unit sold } \
\text { Fixed production costs } & \$ 400,000 \
\text { Fixed selling and administrative expenses } & \$ 280,000 \
\text { Units produced } & 20,000 \text { units } \
\text { Units sold } & 16,000 \text { units }
\end{array}$
-Refer to the Figure.What is the net income for Westwood using the variable costing method?

Accepted Answer

Under the variable costing method, only variable costs are considered in product costing. Fixed production costs are treated as period costs and expensed in the period incurred. The calculation is as follows:Revenue = Selling price per unit * Units sold = $300 * 16,000 = $4,800,000Variable production costs = Variable production cost per unit * Units produced = $80 * 16,000 = $1,280,000Variable selling and administrative expenses = Variable selling and admin expense per unit * Units sold = $32 * 16,000 = $512,000Total variable costs = Variable production costs + Variable selling and administrative expenses = $1,280,000 + $512,000 = $1,792,000Contribution margin = Revenue - Total variable costs = $4,800,000 - $1,792,000 = $3,008,000Fixed costs = Fixed production costs + Fixed selling and administrative expenses = $400,000 + $280,000 = $680,000Net income = Contribution margin - Fixed costs = $3,008,000 - $680,000 = $2,328,000It appears there was a mistake in my calculation. Let's correct that:Revenue = $300 * 16,000 = $4,800,000Variable costs (production + selling and administrative) = ($80 + $32) * 16,000 = $112 * 16,000 = $1,792,000Contribution Margin = Revenue - Variable costs = $4,800,000 - $1,792,000 = $3,008,000Net Income = Contribution Margin - Fixed Costs (production + selling and administrative) = $3,008,000 - ($400,000 + $280,000) = $3,008,000 - $680,000 = $2,328,000Given the options provided, none of them matches the corrected calculation. It seems there was an error in my initial response or in the interpretation of the question's data. Based on the provided information and the corrected calculation, the correct net income should be $2,328,000, which is not listed among the options. Therefore, I must correct my response to accurately reflect the question's choices:Given the provided options and the calculations based on variable costing, it seems there has been a misunderstanding in the calculation process. The correct approach to find the net income under variable costing should involve subtracting all variable costs (both production and selling/administrative) from the sales revenue and then subtracting the fixed costs. However, without the correct calculation aligning to the provided options, an accurate selection cannot be made based on the initial explanation.

Question 13

Theele Corporation has the following information for April, May, and June:
Production costs per unit (based on 10,000 units) are as follows:
 $\begin{array}{lrrr} 
& \text { April } & \underline{\text { May }} & \text { June } \
\text { Units produced } & 10,000 & 10,000 & 10,000 \
\text { Units sold } & 7,000 & 8,500 & 10,500
\end{array}$ Theele Corporation had no beginning inventories for April, and all units were sold for $55 per unit. Costs are stable over the three months.
 $\begin{array}{lr}
\text { Direct materials } & \$ 13 \
\text { Direct labour } & 9 \
\text { Variable factory overhead } & 7 \
\text { Fixed factory overhead } & 5 \
\text { Variable selling and administrative expenses } & 10 \
\text { Fixed selling and administrative expenses } & 4
\end{array}$
-Refer to the Figure.What is the June ending inventory for Theele Corporation when using the variable costing method?

Accepted Answer

Under the variable costing method, only variable costs are included in the cost of inventory. For Theele Corporation, the variable costs per unit are the sum of direct materials ($13), direct labor ($9), variable factory overhead ($7), and variable selling and administrative expenses ($10), totaling $39 per unit. In June, Theele Corporation produced 10,000 units but sold 10,500 units. Since there were no beginning inventories and production equaled sales, there is no ending inventory for June. However, the premise of the question seems to imply a need to calculate something that doesn't align with the provided data (as production and sales figures suggest no inventory). Assuming a misinterpretation and the question intends to ask about inventory calculations in a general sense with variable costing, the calculation typically involves the cost per unit times the number of units in inventory. Given the discrepancy, the correct approach based on the provided data indicates there should be no ending inventory for June, but the options provided do not reflect this scenario accurately.

Question 14

Operating Company has the following information pertaining to its two divisions for the current year:
Common expenses are $50,000 for the current year.
 $\begin{array}{lrr}&\text { North Division }&\text { South Division}\
\text { Variable selling and administrative expenses } & \$ 70,000 & \$ 90,000 \
\text { Direct fixed manufacturing expenses } & 35,000 & 100,000 \
\text { Sales } & 300,000 & 500,000 \
\text { Direct fixed selling and administrative expenses } & 30,000 & 70,000 \
\text { Variable manufacturing expenses } & 40,000 & 100,000
\end{array}$
-Refer to the Figure.What is the segment margin for Division South?

Accepted Answer

Segment margin for Division South is calculated as:Sales - Variable selling and administrative expenses - Variable manufacturing expenses - Direct fixed manufacturing expenses - Direct fixed selling and administrative expenses= $500,000 - $90,000 - $100,000 - $100,000 - $70,000= $140,000

Question 15

Theele Corporation has the following information for April, May, and June:
Production costs per unit (based on 10,000 units) are as follows:
 $\begin{array}{lrrr} 
& \text { April } & \underline{\text { May }} & \text { June } \
\text { Units produced } & 10,000 & 10,000 & 10,000 \
\text { Units sold } & 7,000 & 8,500 & 10,500
\end{array}$ Theele Corporation had no beginning inventories for April, and all units were sold for $55 per unit. Costs are stable over the three months.
 $\begin{array}{lr}
\text { Direct materials } & \$ 13 \
\text { Direct labour } & 9 \
\text { Variable factory overhead } & 7 \
\text { Fixed factory overhead } & 5 \
\text { Variable selling and administrative expenses } & 10 \
\text { Fixed selling and administrative expenses } & 4
\end{array}$
-Refer to the Figure.What is the May contribution margin for Theele Corporation when using the variable costing method?

Accepted Answer

The contribution margin is the difference between the selling price per unit and the variable cost per unit. The variable cost per unit is $39 ($13 + $9 + $7 + $10). The selling price per unit is $55. Therefore, the contribution margin per unit is $16 ($55 - $39). The May contribution margin is $136,000 ($16 x 8,500 units).

Question 16

Stosho Company incurred the following costs in manufacturing desk calculators:
During the period, the company produced and sold 2,000 units.
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 28 \
\text { Indirect materials (variable) } & 8 \
\text { Direct labour } & 16 \
\text { Indirect labour (variable) } & 12 \
\text { Other variable factory overhead } & 20 \
\text { Fixed factory overhead } & 56 \
\text { Variable selling expenses } & 40 \
\text { Fixed selling expenses } & 28
\end{array}$$
-Refer to the Figure.What is the inventory cost per unit using variable costing?

Accepted Answer

The answer of Stosho Company incurred the following costs in...

Question 17

The following information pertains to Shark Corporation:
 $$\begin{array} { l r } 
\text { Beginning inventory } & 0 \text { units } \
\text { Ending inventory } & 6,000 \text { units } \
\text { Direct labour per unit } & \$ 2022 \
\text { Direct materials per unit } & 1618 \
\text { Variable overhead per unit } & 48 \
\text { Fixed overhead per unit } & 1012 \
\text { Variable selling costs per unit } & 1214 \
\text { Fixed selling costs per unit } & 1618
\end{array}$$
-Refer to the Figure.What is the relationship between absorption-costing net income and variable-costing net income?

Accepted Answer

Absorption costing includes both variable and fixed manufacturing costs in the cost of goods sold, whereas variable costing includes only variable manufacturing costs. The difference in net income between the two methods is due to the treatment of fixed manufacturing overhead. With an ending inventory of 6,000 units and a fixed overhead per unit of $1,012, the difference in fixed overhead costs allocated to ending inventory under absorption costing would be 6,000 units * $1,012 = $6,072,000. However, without information on the number of units produced or sold, the specific net income difference cannot be accurately calculated from the provided data. The correct relationship (greater or less) depends on whether the ending inventory increased or decreased, but with the given information, it's not possible to calculate the exact dollar difference. The choice is based on understanding the conceptual difference between the costing methods, not the provided numerical data.

Question 18

The following information pertains to Nute Corporation:
 $$\begin{array} { l r } 
\text { Beginning inventory } & 1,000 \text { units } \
\text { Ending inventory } & 6,000 \text { units } \
\text { Direct labour per unit } & \$ 40 \
\text { Direct materials per unit } & 20 \
\text { Variable overhead per unit } & 10 \
\text { Fixed overhead per unit } & 30 \
\text { Variable selling and administrative costs per unit } & 6 \
\text { Fixed selling and administrative costs per unit } & 14
\end{array}$$
-Refer to the Figure.What is the value of the ending inventory using the variable costing method?

Accepted Answer

The answer of The following information pertains to Nute Corporation:
...

Question 19

Westwood Company has the following information the current year:
Eastwood had no beginning inventories.
 $\begin{array}{lr}
\text { Selling price } & \$ 300 \text { per unit } \
\text { Variable production costs } & \$ 80 \text { per unit produced } \
\text { Variable selling and administrative expenses } & \$ 32 \text { per unit sold } \
\text { Fixed production costs } & \$ 400,000 \
\text { Fixed selling and administrative expenses } & \$ 280,000 \
\text { Units produced } & 20,000 \text { units } \
\text { Units sold } & 16,000 \text { units }
\end{array}$
-Refer to the Figure.What is the net income for Westwood using the absorption costing method?

Accepted Answer

The answer of Westwood Company has the following information the...

Question 20

Theele Corporation has the following information for April, May, and June:
Production costs per unit (based on 10,000 units) are as follows:
 $\begin{array}{lrrr} 
& \text { April } & \underline{\text { May }} & \text { June } \
\text { Units produced } & 10,000 & 10,000 & 10,000 \
\text { Units sold } & 7,000 & 8,500 & 10,500
\end{array}$ Theele Corporation had no beginning inventories for April, and all units were sold for $55 per unit. Costs are stable over the three months.
 $\begin{array}{lr}
\text { Direct materials } & \$ 13 \
\text { Direct labour } & 9 \
\text { Variable factory overhead } & 7 \
\text { Fixed factory overhead } & 5 \
\text { Variable selling and administrative expenses } & 10 \
\text { Fixed selling and administrative expenses } & 4
\end{array}$
-Refer to the Figure.What is the April ending inventory for Theele Corporation when using the variable costing method?

Accepted Answer

Under variable costing, only variable production costs are included in inventory. For April, 3,000 units remain unsold (10,000 produced - 7,000 sold). The variable cost per unit is $29 ($13 materials + $9 labor + $7 overhead). Thus, ending inventory is 3,000 units x $29 = $87,000.

Quiz 8: Absorption and Variable Costing, and Inventory Management

Carmel Company uses 810 units of a part each year. The cost of placing one order is $10; the cost of carrying one unit in inventory for a year is $4. -Refer to the Figure.What is the EOQ for Benton?